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tor’s subrogation rights against Bank B.
37. U.C.C. § 4A-406(c).
38. U.C.C. § 4A-204(a).
39. U.C.C. § 4A-209(b)(3).
40. U.C.C. § 4A-210(b).
41. U.C.C. § 4A-305(a).
42. U.C.C. § 4A-402(d).
43. U.C.C. § 4A-404(b).
44. U.C.C. § 4A-506(a).
45. U.C.C. § 4A-506(b).
46. Id. Banks are required to deposit with the Federal Reserve
a percentage of their deposits as a reserve requirement.
The deposits do not earn interest.
47. Official Comment 1 to U.C.C. § 4A-506.
48. U.C.C. § 4A-504(a).
49. U.C.C. § 4A-507(b).
50. U.C.C. § 4A-507(a).
51. U.C.C. § 4A-502(b).
52. Specifically, with respect to the customer’s errors, U.C.C.
§ 4A-302(a)(1) states that the receiving bank must issue a payment order complying with the sender’s order.
53. U.C.C. §§ 4A-209(a), 4A-210(a), and 4A-212. Under U.C.C.
§ 4A-212, the receiving bank has no duty to accept a pay-
ment order or “before acceptance, to take any action, or refrain from taking action” with respect to the order except to the extent the bank has expressly agreed otherwise.
54. U.C.C. § 4A-207(b)(1).
56. Comment 2 to U.C.C. § 4A-207.
57. U.C.C. § 4A-207(c)(2).
58. Official Comment 3 to U.C.C. § 4A-207.
59. Comment 3 to U.C.C. § 4A-207.
60. U.C.C. § 4A-207(c)(2). For an example of a notice under § 4A-207, see § 2.3.1 of the American Bar Association’s Model Funds Transfer Services Agreement. The notice is reproduced and U.C.C. § 4A-207 is discussed in Turner, Negotiating Wire Transfer Agreements, 19.
61. U.C.C. § 4A-207(b)(2).
62. U.C.C. § 4A-207(b)(1).
63. U.C.C. § 1-201(27) of Article 1. Article 1 contains general
rules and definitions applicable to all of the Articles of the
Uniform Commercial Code.
64. U.C.C. § 4A-207 (b)(1). See the discussion in Turner, Negotiating Wire Transfer Agreements, 21, in which it is suggested, wrongly, the author now believes, that the bank is more vulnerable to a claim that it failed to exercise due diligence when the funds transfer is a “book transfer,” that is, when the originator and the beneficiary use the same bank.
65. Official Comment 2 to U.C.C. § 4A-207.
67. U.C.C. § 4A-207(d) (1). Mutual Fund would not seem to have an action against Doe, who would seem entitled to rescind the redemption, or against Roe if Roe is an innocent party, but Mutual Fund’s rights against the wrongdoer, Doe, and Roe would be governed by law other than the law of U.C.C. Article 4A and are beyond the scope of this book.
68. Official Comment 2 to U.C.C. § 4A-208.
69. U.C.C. § 4A-305(b).
70. U.C.C. § 4A-208(b)(2). An originator that is not a bank is not entitled to the notice and could not hold the receiving bank liable for a breach of § 4A-302.
71. U.C.C. § 4A-208(b)(2).
72. The notice is reproduced and U.C.C. § 4A-208 discussed in Turner, Negotiating Wire Transfer Agreements, 19, 21.
73. U.C.C. § 4A-208(3).
74. U.C.C. § 4A-207(b)(2) provides that in the event of such wrongful payment, “acceptance of the order cannot occur.”
The customer would accordingly be entitled to the benefit of the “money-back guarantee” provisions of U.C.C. § 4A-402. See Chapter 4.
75. The omission is probably an oversight and may be attributed to the fact that it is most unlikely that a bank would execute the customer’s order with knowledge that the name and number identify different persons unless it also knew that the name or number in the bank’s order to the next bank in the funds-transfer chain identified the right person. Even when the name and number identify different persons, the likelihood of loss resulting from the error seems minimal.
76. U.C.C. § 4A-208(b)(1).
77. Official Comment 1 to U.C.C. § 4A-205.
79. Official Comment 2 to U.C.C. § 4A-205.
80. Official Comment 1 to U.C.C. § 4A-205. See U.C.C. § 4A-205(a)(i) through (iii).
81. Article 4A does not define “ordinary care.” For purposes of negotiable instrument law, that is, checks, U.C.C. § 3-103(a)(7) defines ordinary care as the observance of reasonable commercial standards.
82. Comment 2 to U.C.C. § 4A-205.
83. U.C.C. § 4A-501(a) provides that any provision of Article 4A may be varied by the agreement of the parties “except as otherwise provided” in Article 4A. Inasmuch as no provision forbids variation of U.C.C. § 4A-205, the bank may disclaim liability for the customer’s errors under that section.
84. Comment 3 to U.C.C. § 4A-205.
Risks of Automated Clearing House Payments
The automated clearing house (ACH) payment system has operated under a system of rules that are accepted by all participants and have been in use for many years.
Business establishments use ACH transactions for many types of payments. Businesses pay bills owed to other businesses through ACH. Businesses originate consumer credits by paying employees direct deposits of payroll, reimbursements for travel, and benefits. They initiate consumer debits to re-present checks that have been returned for insufficient funds and to convert consumer checks presented at the point of purchase or mailed to a merchant or lockbox. Businesses receive ACH payments from purchasers of their goods and services. The success of the ACH payment system can be measured by its infrequent failures and invulnerability to the usual attempts at fraud.